Venezuela politics: Henri Falcón and political transition

Henri Falcón of Avanzada Progresista (AP) will face the president, Nicolás Maduro of the ruling Partido Socialista Unido de Venezuela (PSUV), in a presidential election on May 20th.

Mr Falcón's candidacy seems doomed to fail owing to a demobilised base, the lack of a nationwide campaign apparatus and a rigged electoral system.

Mr Falcón seems to be openly courting the pragmatists in the PSUV, hoping that they will put pressure on Mr Maduro and facilitate Mr Falcon's victory in May. Mr Falcón promises an economic stabilisation programme and the end of the political crisis.

In order to be a viable alternative, Mr Falcón would need the support of the local opposition and foreign governments for his political and economic stabilisation programme. The candidate is yet to show that he has such support and is unlikely to amass it.

The Economist Intelligence Unit continues to expect that Mr Maduro will win the election. However, his support will continue to erode as stakeholders in the military react to the economic crisis and the erosion of the government's patronage system.

Our baseline forecast assumes that a coup will take place, followed by elections, within the next 18 months. However, uncertainty is high. A transitional government of uncertain duration led by civilian figureheads, Mr Falcón included, remains a distinct possibility.

Venezuela's electoral system, which has for years handicapped the opposition, has become even more oppressive of late, with the government banning the major opposition parties from participating, including the main umbrella organisation, the Mesa de la Unidad Democrática (MUD). It this context, the majority of the opposition decided to boycott the elections, but Mr Falcón broke with this unity by becoming the only opposition politician of national relevance to participate. As a result, the MUD has publicly distanced itself from Mr Falcón.

This has severely damaged Mr Falcón's chances. Although AP will be supported by other smaller parties, it will struggle to mobilise voters without the backing of MUD's main players, especially Acción Democrática and Primero Justicia. AP has limited territorial presence, with greater strength only in the centre‑west state of Lara, which Mr Falcón governed in 2008‑17. However, even in that stronghold AP was soundly beaten in the October and December 2017 subnational elections. Despite the irregularities surrounding those elections, Mr Falcón admitted defeat quickly, something that his detractors have often criticised.

The lack of a campaign apparatus is a clear drawback given the fact that participation in elections is voluntary and opposition voters are demoralised and demobilised. Indeed, while Mr Maduro's popularity oscillates between 20%‑30%, the vast majority of those supporters (as much as nine‑tenths) have told pollsters that they are willing to vote. Conversely, of the 70% or so of voters that do not support the government only a fraction (as low of two‑fifths) is willing to vote under the current electoral conditions. Furthermore, Mr Falcón does little to inspire these voters, as his popularity rating is as low as that of Mr Maduro.

As such, and although Mr Falcón leads in most polls in which voters are given a choice between him and Mr Maduro, it is unclear whether his potential supporters will actually turn up to vote. The MUD was hobbled by the demoralised state of the electorate in the October elections, and Mr Falcón faces the same problem. In this climate, and without the help of the MUD's get out the‑vote operation, low participation numbers make it possible that Mr Falcón may be defeated even without outright fraud. Moreover, he has failed to secure credible international observers for the election, meaning that even if he were to mobilise enough voters to achieve a clear electoral advantage, he would have no third‑party confirmation, and would be left at the mercy of the government‑controlled electoral authority confirming the electoral results.

The "inside track" candidate for transition

Mr Falcón seems to understand that under current circumstances his campaign is doomed to fail. He recently started a national tour and touted the importance of boosting participation, but he seems to be—at least partly—attempting to engage a different kind of electorate than Venezuelan voters.

In early March Eduardo Semtei, a member of AP, gave a press interview stating that General Vladimir Padrino López, the minister of defence, would be allowed to remain in charge if he guaranteed the loyalty of the armed forces. Such open courting of the military, itself a hotbed of shifting loyalties, suggests that Mr Falcón, knowing that a clean electoral victory is unlikely, welcomes pressure from PSUV pragmatists on Mr Maduro in order to facilitate a Falcón victory in May. Indeed, Mr Falcón has said that he would be willing to take office the day after the elections and not wait until 2019, when Mr Maduro's term officially ends.

Casting himself as a rare consensus politician, having been a central figure in both the PSUV and the MUD, Mr Falcón seems to offer an enticing deal to the most pragmatic members of the regime. A Falcón presidency would lend legitimacy to the government and lead to the easing of international sanctions. Removal of the sanctions, in turn, would facilitate restructuring of the external debt and access to external finance sorely needed to get PDVSA, the troubled state oil firm, back on track. Supporting this view, Mr Falcón has visited the US and publicly spoken of having "high level contacts" with US and Latin American governments. His main economic advisor, Francisco Rodríguez, a Wall Street economist and former public official who advised the government as late as 2016, has laid out a stabilisation programme that proposes to dollarise the economy, re-schedule external debt payments, turn PDVSA around and restore access to international financing. Mr Falcón seems to offer a solution, although light on details, to both the country's political and economic crisis.

However, Mr Falcón's deal may look too good to be true. For starters, Mr Falcón may not be able to secure backing from the opposition. He may be seen not as a transition figure but as whitewashing an autocratic regime. To gain legitimacy from domestic and external opposition figures, Mr Falcón would have to restore civic freedoms and release political prisoners, something that he may be unable to do or that could trigger political instability. Without such legitimacy, a lifting of the international sanctions is unlikely, impeding a central part of the macroeconomic programme.

Even assuming that sanctions are lifted and the opposition is co‑operative (perhaps enticed by some cabinet posts), the macroeconomic programme needed to stabilise the economy would, by its very nature, upset the power balance within the regime. For example, Mr Falcón's programme would eliminate opportunities for rent-seeking—meaning the profits that politically connected individuals reap from the subsidised import of goods and from arbitrage in the distorted foreign‑exchange market. Similarly, the widespread corruption at PDVSA and other state‑owned firms would have to be curtailed to a minimum. These measures, although putting Venezuela on the road to macroeconomic stability, would harm the regime's backers, some of whom will be needed to keep Mr Falcón in office. Other hurdles, in the shape of the judiciary, the de facto legislature that is the Constituent Assembly, and the colectivo—a cross between a PSUV paramilitary and community organisers—would be hard to overcome with limited internal PSUV support.

Too narrow a needle to thread

In short, Mr Falcón's offer of a transition deal to the most pragmatic members of the PSUV must include a macroeconomic plan that retains some room for rent-seeking by PSUV backers but that also solves the macroeconomic distortions that said rent-seeking activities generates. And Mr Falcón must secure international and local legitimacy in order to pressure pragmatists and show that he is a credible alternative to Mr Maduro.

However, international leaders have, for the most part, steered clear of him. The upcoming Summit of the Americas, taking place on April 13th‑14th in Peru, may offer news on this front, but it is unlikely that Mr Falcón will attract the backing of regional governments. Locally, the opposition continues to shun him despite his overtures. Rumours abound of negotiations between Mr Falcón and the largest MUD parties to get the latter to participate in the elections, and include talk of possible postponement of the elections and introduction of new electoral guarantees. However, we see it as unlikely that such negotiations would be fruitful. The MUD's election boycott stems from failed negotiations in the Dominican Republic, which were precisely intended to guarantee basic electoral transparency rules—which the government could not agree to without risking a nearly certain electoral loss.

In the current context, we do not think that Mr Falcón can gather the local and external support needed to be considered a credible alternative to Mr Maduro during these elections. Mr Maduro's re‑election, then, seems inevitable.

Transition remains our main forecast

Although we expect Mr Maduro to remain in office in the short term, we do not see him staying on past late 2018 or early 2019. The patronage system that keeps Mr Maduro in power is fuelled directly and indirectly by the income generated by PDVSA. A potential interruption of oil exports would destabilise the patronage system, likely irreparably. Sanctions on the oil trade by the US, Venezuela's largest cash‑paying market, would trigger such an interruption. Similarly, concerted legal action in the US over the country's failure
to pay its external debt could also disrupt trade via seizures of PDVSA assets or
export shipments. Although likely, especially given a recent change in leadership at the US State Department and growing impatience among creditors, the timing of such measures is uncertain. However, the patronage system seems doomed to fail regardless. PDVSA output continues to dwindle and we expect it to reach terminal status by late 2018 or early 2019.

What happens next is difficult to predict, especially in the light of the close relationship between military leaders and PSUV civilians. An outright military government is a possibility. An internal re‑organisation of the regime, whereby the military takes on increased powers while maintaining civilian figureheads—perhaps even allowing some opposition participation—is also possible. Mr Falcón would certainly fit the bill in such a scenario. However, we continue to believe that the profound economic crisis and desperate humanitarian situation will fuel social upheaval and undermine the loyalty of the military's lower ranks, which will force the military's hand and prompt it to remove Mr Maduro from power, accept foreign humanitarian aid and call for elections.